Georgia Levenson Keohane

Recent Posts by Georgia Levenson Keohane

President Obama has called for the creation of an infrastructure bank. Congress must follow his lead.

“It's not a bigger government we need,” President Obama said in the State of the Union address, “but a smarter government that sets priorities and invests in broad-based growth.” The creation of a national infrastructure bank is a “smarter government” idea whose time has come.

President Obama has called for the creation of an infrastructure bank. Congress must follow his lead.

“It's not a bigger government we need,” President Obama said in the State of the Union address, “but a smarter government that sets priorities and invests in broad-based growth.” The creation of a national infrastructure bank is a “smarter government” idea whose time has come.

Plans for a national infrastructure bank – one that uses federal funds to incent or leverage even greater investment, public and private, in large-scale public purpose projects – have been percolating since the 1990s. President Obama has long been a champion, and the idea has enjoyed bipartisan support in Congress and backing from the likes of the AFL-CIO and U.S. Chamber of Commerce. Yet we remain stalled in enacting this kind of finance facility, despite the weight of evidence of its potential efficacy and the urgency of the infrastructure (and financing) need. It is time, as the president urged, to put the nation’s interest before party, and to use this kind of public-private partnership to make the investments vital to our economic prosperity.

Arguments in favor of the I-Bank are premised on simple logic. Investments in the infrastructure we require to remain economically competitive – improved roads and bridges, high-speed rail, a new power grid, universal broadband access, renewable energy – will also put people to work. “Smart” use of some of our public dollars via grants, loans, loan guarantees, and other risk-mitigating instruments can encourage or stimulate substantially greater investment in these projects by states, municipalities, and private sector actors. Senators John Kerry, Kay Bailey Hutchison, and Mark Warner estimated that their proposed $10 billion American Infrastructure Financing Authority could unleash an additional $640 billion in infrastructure spending over the course of a decade.

With all this win-win, what explains the delay in actually establishing such a bank? First, given current fiscal constraints, every dollar counts, and even a few budgetary billions that promise significant return on investment may not deliver those returns in this election cycle. Instead, many in Congress prefer to retain prerogative over on what and where investments are made (preferably in their districts) rather than cede allocation decisions to an independent authority. Second, despite the endorsements from pro-business groups like the Chamber of Congress, a number of conservative Republicans have voiced predictable remonstrations: concerns over project selection process (“picking winners”), fear that the investment needs of metropolitan areas will be privileged over those of rural states, and a general (and congenital) preference for state-level decision making.

In fact, states have already taken the lead on creating infrastructure banks, as necessity has bred all kinds of invention. In the U.S., approximately 75 to 85 percent of infrastructure spending is financed by state and local governments, an unsustainable burden for states whose budgets and borrowing capacity have been eviscerated by the global financial crisis. According to the Federal Highway Administration, 32 states have infrastructure banks, and many new entities are taking shape, from Alaska to Virginia. Last year, the New York Works Task Force, headed by Felix Rohatyn (who helped save New York City from bankruptcy in the 1970s) called for the creation of a multibillion-dollar infrastructure bank for the Empire State.

In Chicago, Mayor Rahm Emmanuel, who as President Obama’s chief of staff was actively involved in the White House push for a national infrastructure bank, has created the Chicago Infrastructure Trust (CIT), designed to spur private capital investment in a range of infrastructure projects, including transportation, alternative energy technologies, and telecommunications and broadband access. The CIT will be capitalized by the likes of Citibank and JP Morgan and will fund projects with both debt and equity. The first local I-Bank of its kind, the CIT lies at the heart of Chicago’s new economic growth strategy.

A national infrastructure bank could learn from these local experiments. Private sector investment is not a panacea; it only lends itself to projects that can generate sufficient revenue, often in the form of user fees, like tolls on roads, to attract commercial capital. Sometimes, particularly when municipalities sell off assets, there can be unintended consequences to privatization. In 2008, Chicago Mayor Richard Daley famously leased the city’s parking meters to a private consortium for a handsome up-front fee of $1.15 billion. However, subsequent valuations of the future parking meter revenues put them at approximately $11.6 billion over 75 years – money that will accrue to the private investors, not to the city for things like education, libraries, or transportation.

A number of important new studies draw on these local experiments and best practices from around the world, including those of the European Investment Bank, which was established in 1958 and attracts a wide range of investors. Emilia Istrate and Robert Puentes note that 30 countries have specialized public-private partnership (PPP) units within their governments to promote this kind of cross-sector work. They suggest that, in addition to a national I-Bank, such an office could be housed within the Office of Management and Budget and could support state and local governments with their infrastructure investments. The idea is not to supplant or crowd out state or local investment efforts. As William Galston and Korin Davis point out, a national I-Bank would facilitate regional projects that span multiple states or those that promote goals that are truly national in scope, such as renewable energy development, a seamless power grid, or multimodal freight transport.

This would not be the first time we have looked to public-private partnership for massive infrastructure modernization and job creation. Franklin Delano Roosevelt’s New Deal included public-private ventures like the Tennessee Valley Authority, which FDR described as “a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise.” Obama’s New Deal – Keynes meets leveraged finance – would draw on this tradition of cross-sector collaboration with an eye toward our 21st century economic needs.

Calls for greater infrastructure investment have been amplified in recent months by events like hurricane Sandy, which underscore the urgency – and often regional and national nature – of the need. Polls from Lazard and the Rockefeller Foundation, among others, show that the vast majority of Americans, despite valid privatization concerns, are supportive of a mix of infrastructure finance that includes private sector capital, particularly if it is in lieu of further budget cuts or tax increases. The president and Congress must seize the moment: the time is right for a significant public-private investment in our nation’s future.

Hurricane Sandy’s violence was a tragic reminder of some important truths in American life: climate change matters, government matters, and caring for the vulnerable – for those severely afflicted by circumstances beyond their control – not only matters, it is the essence of who we are as a people. Today, our country’s vulnerable include the 46 million people – nearly one in six – who live in poverty, and 16 million of those are children. This deprivation is particularly grievous in context: earnings for the wealthiest continued to grow last year, while income for the rest stagnated or fell. These levels of poverty and inequality are not only unconscionable, they threaten our economic security. When it comes to fighting poverty, what do we make of the Obama team’s record and, more importantly, what should be its priorities for the next four years?

The Poverty of the Debate on Poverty

Poverty’s notable absence during the campaign season disappointed and galvanized many progressives who hoped to insert the issue into the election platform and political debates. Those concerns echoed earlier remonstrations that that the president had failed to address poverty over the last four years with the passion or federal muscle promised in his 2008 campaign. “Barack Obama can barely bring himself to say the word ‘poor,’ Bob Herbert wrote this spring in The Grio. Paul Tough, Herbert’s public conscience heir at the New York Times, explains the political conundrum behind the administration’s focus on the economic woes of a broader set of struggling Americans rather than on the poorest per se: “how do you persuade voters to devote tax dollars to help the truly disadvantaged when the middle class is feeling disadvantaged itself?”

While we may long for the soaring rhetoric of 2008, the fact is these broad-based policies have worked. They have not eradicated poverty, but many important domestic programs – the stimulus, in particular, which included new and expanded tax credits, enhanced unemployment insurance, and increased eligibility for food stamps – kept an estimated seven million out of poverty and cushioned against even greater hardship for more than thirty million people already below the federal threshold. Not to mention that health care reform extended coverage to tens of millions of uninsured Americans (in part by expanding access to Medicaid). The federal poverty measure does not take into account non-cash transfers, including food stamps, housing subsidies, and health care benefits like Medicare and Medicaid. When these are factored in, it appears as though poverty has not increased under Obama’s tenure.

Pivot from Defense to Offense

When it comes to a new kind of war on poverty, the Obama administration must recognize that it now has the freedom – and, arguably, an electoral mandate – to address need in this country in ways that serve the struggling middle class and target programs and policies to help the poor. This is not an either/or proposition. And of course job creation is the primary lever: there is no better way to help all Americans in the next four years and beyond.

In terms of programs to address persistent poverty, however, Obama’s second term agenda must pivot from defense to offense, graduating from “could have been worse” blood staunching to an even greater commitment both to long-term investments in human capital and interim supports that shield children and families from some of the most severe privations of life in poverty. Here are three places to begin:

(1) Redouble investment in comprehensive and community-wide approaches to fighting poverty. Tough laments that, while in 2008 Obama called for “billions” for programs like Promise Neighborhoods that are modeled on Harlem Children’s Zone’s and provide a broad swath of interventions for poor children and their families, the administration to date has spent just $100 million on pilot programs in 37 communities across 18 states. Ongoing and expanded support for these kinds of holistic programs in cities across the country would make for a sound investment in human potential, using federal structure and funds to support local and community generated solutions.

(2) Commit more fully to investments in high quality early childhood education and childcare, which yield substantial returns in the school success and life prospects of low-income children and their working parents. This means expanded tax credits and other financial supports for families paying for childcare. It also means increased funds for proven programs like Head Start and Early Head Start, particularly when state governments across the country, with budgets in crises, have been forced to cut Pre-K programs. Head Start and Early Head Start are chronically underfunded and therefore do not reach many eligible families.

(3) Reform welfare reform, so that it provides real ‘safety’ for poor families in tough economic times. Although it has long been touted as a success of the Clinton administration, the 1996 welfare reform, which devolved much of TANF to the states and linked cash assistance to stringent work requirements, was structurally flawed. First, it was not indexed for inflation (and is funded at its 1996 level). Second, as a block grant it leaves poor people dependent on (now) cash-strapped states for support. Third, the original work requirements were predicated on the existence of work, not on the stubbornly high unemployment rates of this recession. The federal government must reclaim a greater role in the redesign and provision of temporary assistance for needy families to help keep them out of extreme poverty in the way it has done with other critical strands of the safety net like food stamps and unemployment insurance.

With this second term, the Obama administration has the chance to broaden opportunity and to make vital advances in the fight against poverty.

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The gap between America's rich and poor is growing wider, and a new IMF study shows why that inequality is hurting our economy.

The gap between America's rich and poor is growing wider, and a new IMF study shows why that inequality is hurting our economy.

Nowhere is the divide in America between the haves and have-nots a stark as it is in New York City, where one in five people -- and 30 percent of children -- have fallen into poverty. Last week, as global dignitaries and local luminaries crisscrossed midtown between UN gatherings, CGI's soirees, and presidential-hopeful fundraisers, the Census Bureau conferred on Manhattan a less-than-luminous distinction: It is now the income inequality capital of the United States.

In the city's center, the top fifth of earners makes 38 times as much as the bottom fifth, which means that by Gini coefficient -- the ratio economists use to measure economic inequality -- Manhattan ranks among some of the world's most economically unstable and politically unsavory countries.

Unfortunately, our country as a whole doesn't fare much better. That the recent Census data confirming depressing -- and Depression -- levels of poverty were "worse than many economists expected" just tells us that economists don't get out much. 42 million Americans and rising are poor, and median family income continues to decline while those earning more than $100,000 have experienced improvements in income. This kind of inequality -- the growing chasm between the rich and the rest -- is at levels unseen since 1929.

The United States falls well behind France, Germany, the UK, and almost all other developed countries on this score. We are living, some argue, in a North American banana republic: our income inequality is worse than that of Guyana, Nicaragua, and Venezuela. When it comes to shared prosperity, we keep company with Iran and Yemen.

Though Manhattan may reign supreme, it turns out that poverty in the U.S. is not an urban -- or even rural -- phenomenon. Most poor Americans -- nearly one third of all people in poverty in this country -- live in the suburbs, where poverty has exploded by more than 50 percent since 2000. By any measure -- antiseptic community survey data, lines in our cities' soup kitchens, hidden and hard-to-reach hardship in large swaths of the country -- poverty is a national crisis. And inequality -- want amidst unprecedented prosperity -- is not only a dystopic inversion of the American dream; it represents a series of moral and policy choices we have made as individuals and a society. Reversing this slide -- to salvage a lost decade and give us hope for the next -- demands a very different set of choices. This won't be easy (for starters, it will require the political will to reform tax, immigration, labor, and education policy, and to rethink the relationship between the financial sector and the rest of the economy). So why bother?

Concerns about local and global inequality are not new, but our understanding of the causes and consequences may be showing signs of progress. Lost in last week's hullabaloo about class warfare was the quiet publication of a report from IMF economists challenging the macroeconomic orthodoxy that there is an inherent trade-off between the pursuit of economic equality and efficiency. As articulated by the late Yale economist Arthur Okun and others, that logic goes something like this: equal distribution of incomes reduces incentives to work and invest, and the costs of redistributive tools -- say, increasing income taxes or the minimum wage -- can outweigh the benefits.

In their groundbreaking reappraisals, Andrew Berg, Jonathan Ostry, and Jeromin Zettlemeyer examine the long-term growth of countries over the last half century and find that this trade-off may, in fact be false. "Do societies inevitably face an invidious choice between inefficient production and equitable wealth and income distribution?" they ask. "Are social justice and social product at war with one another? In a word, no." The author's conclusions get to the heart of the "why bother?" matter. "More inequality," they find, "seems associated with less sustained growth."

It may seem counterintuitive that inequality is strongly associated with less sustained growth. After all, some inequality is essential to the effective functioning of a market economy and incentives are needed for investment and growth... But too much inequality might be destructive to growth.

The notion that we have long passed the growth-maximizing level of inequality in the U.S. has been gaining currency. By supplying rigorous analytics for the economic growth case for greater equality, Berg, Ostry, and Zettlemeyer may have profoundly altered the way we collectively think, talk about, and act on gaping economic disparities.

Throughout history, we have been concerned with the moral dimensions of inequality, yet even in the United States -- a country founded on egalitarian precepts -- the last 50 years have shown that the case for fairness rarely wins the economic policy day. The fact that inequality correlates so closely with other noxious social indicators (poor life expectancy, high infant mortality rates, low levels of health insurance and physical and mental well being) and that the U.S. lags most of its developed country peers on these measures has also failed to move the policy needle, even when we know that remediation of these problems is costly. The failure of this evidence to sway U.S. policy makers does not surprise those who make the political corruption case that inequality -- and the plutocratic influence of the super-rich (who do just fine on social indicators) -- subverts our politics process.

What then of instability? Surely the threat of political and economic fragility worries our elites? Some contend that pronounced inequality caused the 2008 financial crash (this argument usually has two variants -- the "let them eat credit" school, which posits that politicians respond to economic anxiety in the electorate by allowing easy credit, and the reckless investor theory of asset bubbles). To the extent that Wall Street has recovered from the '08 unpleasantness, these arguments hold even less truck there. On the political side, comparisons to unstable Latin American or repressed Middle East regimes could beg the uprising question; indeed, the last time we saw these levels of inequality in the U.S. in 1929, fear of socialist revolution was real and palpable. In response, we developed important safety net features like Social Security and Medicare, which, for the most part, have kept seniors out of poverty. The success of these programs ensures that political revolt in this country will not take the form of Bastille-storming for greater egalité. It may amount to voting President Obama from office, but this prospect has not galvanized the Republican Congress to fight economic inequality.

This is why the findings of Berg, Ostry, and Zettlemeyer -- their challenge to the efficiency trade-off, their linkage of equality and growth -- are so important. This fundamental paradigm shift in how we understand inequality may be our best hope for combating it. Our nation's economic recovery and long-term health is at stake.

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In a week-long series, prominent thinkers will look at ways to harness the private sector or extract more from a recalcitrant public sector in order to combat poverty and inequality. In the first post, Roosevelt Institute Fellow Georgia Levenson Keohane reminds us that while the government should be tackling these problems, there are practical and potentially exciting ways to get things done without it.

In a week-long series, prominent thinkers will look at ways to harness the private sector or extract more from a recalcitrant public sector in order to combat poverty and inequality. In the first post, Roosevelt Institute Fellow Georgia Levenson Keohane reminds us that while the government should be tackling these problems, there are practical and potentially exciting ways to get things done without it.

If there is any silver lining to the debt ceiling fiasco, it is that it has reshaped the contours of our national debate. No longer are we simply concerned with fiscal, economic or credit rating calamity; the crisis has gone existential.

Facts, it turns out, are stubborn and occasionally inconvenient. A budget deal that shreds the fabric of our social contract cannot ignore the following: that the recession has severely exacerbated poverty in the U.S.; child poverty remains shamefully high; inequality soldiers on; record and persistent unemployment -- either by official or more sobering measures -- has made life for millions of Americans scrambling to stay out of poverty cruelly hard and stressful. And all this before an unprecedented round of cuts to basic programs and services that comprise our safety net that will worsen, rather than improve, matters. The best route out of this mess, to say nothing of long-term prosperity, is jobs. Full stop.

On the question of employment, one does not need to be a student of history, Keynes, or a host of recent examples to face up to reality. Just take a look at the current British experiment in slash and burn austerity, the successes of the U.S. stimulus package (and in particular the tax credits, food stamps, unemployment insurance, and other social welfare provisions) that kept poverty from getting a whole lot worse, the basics of cost benefit (investments in things like early childhood education or healthcare for everyone, and for poor people especially, yield positive returns) or the basic levers of public policy (budgets have two sides, expenses and revenues). Job creation will require government spending. Full stop number two.

When it comes to fighting poverty, it is critical that we continue to wage these ideological and political battles. Yet at the same time, we must also embrace a pragmatic approach to policy formulation that recognizes the harsh realities of austerity: government sorely lacks the resources -- cash and political will -- to meet the surge in human needs. In the coming days, a series of posts will address issues of poverty and equality of opportunity in exactly these terms, illustrating important 'social innovations' that allow us to do more with less. Broadly speaking, we will hear about two kinds of approaches: initiatives that enable us to do a better job with the government funds we already have, and those that help attract new sources of capital to bear on social problems. Topics will include recent efforts to improve measurement and evaluation of critical social services, new programs designed to help poor people access benefits for which they are already eligible, experiments in designing 'social finance' instruments that aim to monetize the value of raising people out of poverty, and others. These are collaborations between non-profit organizations and their allies in local, state and the federal government to harness new sources of philanthropic or other private investment in improving social welfare.

The progressive project would be wise to remember that these social innovations are in no way a capitulation to our current and fractured tail-wagging-the-dog politics. Rather, they represent a forward looking recognition that economic recovery and sustained, shared prosperity will require practical, cross-sector and creative solutions to our most pressing problems.

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In a three-part series, Roosevelt Institute Fellow Georgia Levenson Keohane explores India's microcredit crisis and what it teaches us about combating poverty. In her final post, Keohane questions the efficacy of microcredit. Does it really transform lives? How do we know?

In a three-part series, Roosevelt Institute Fellow Georgia Levenson Keohane explores India's microcredit crisis and what it teaches us about combating poverty. In her final post, Keohane questions the efficacy of microcredit. Does it really transform lives? How do we know?

Beyond yesterday's question of non-profit versus for-profit, the microcredit crisis in India has emboldened naysayers who question whether either model has proved itself the hoped-for panacea for global poverty. Does microcredit even work, they ask? And how do we know?

This spring, Esther Duflo and Abhijit Banerjee, the highly regarded MIT economists who run the Abdul Latif Jameel Poverty Action Lab (J-Pal), published Poor Economics: a Radical Rethinking of the Way to Fight Global Poverty. In it, they draw on their field research: hundreds of randomized control trials designed to examine which policies and practices (and under what conditions) successfully reduce poverty, and which do not. Duflo and Banerjee's empirical approach is widely credited with transforming the field of international development and the economics discipline more broadly. Moreover, their work on microlending finds "clear evidence that microfinance was working." Because Duflo and Banerjee, like other empiricists, also conclude that micro-lending produced little "radical transformation" in the lives of the poor people they studied, many have been quick to pronounce microcredit's failure.

The value of bold, persistent policy experimentation

Duflo and Banerjee insist otherwise. "The main objective of microfinance seemed to have been achieved," they write. "It was not miraculous, but it was working... In our minds microcredit has earned its rightful place as one of the key instruments in the fight against poverty."

The lessons here about what Franklin D. Roosevelt called "bold, persistent experimentation" are crucial for policy makers the world over. First, the absence of panacea does not amount to program failure. Second, the value of the 'controlled experiment' paradigm lies in its parsing power. These kinds of studies -- akin to the randomized contrail trials (RCT) of medical research -- offer a tool to pinpoint which components make a policy effective, which do not, and which can be improved to enhance service delivery and social benefit. Duflo and Banerjee suggest, for example, that most existing microcredit lending structures (for-profit or not for profit) do not permit the poor to borrow and invest sums large or long-term enough for higher risk and return projects that might actually transform their lives. The experiment indicates that creating access to this kind of credit is the next -- and more complex -- frontier in improving capital markets for the poor.

A different empirical tact has shown that microcredit works when loans are combined with other products or services, like savings or insurance. In Portfolios of the Poor, researchers Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven examined the financial diaries of the hundreds poor people in India, Bangladesh, and South Africa and determined that credit to build small businesses, though effective, was not enough. Borrowers also benefited from credit for things like doctor's bills, school fees, weddings, and funerals. Increasingly, microfinance institutions (MFIs) are experimenting with product and service innovations along these lines.

Portfolios of the Poor also describes how Grameen made enormous strides in learning from its own experience. In a series of reforms known as Grameen II, the bank began to offer a broader range of savings and credit accounts, and more flexibility as to when and how its clients could access them. A number of other Grameen inspired organizations continue to learn from these experiments. The Grameen Foundation, for example, promotes poverty reduction through microenterprise and technology, with recent innovations like Mobile Financial Services and Mobile Technology for Community Health (MoTech). Grameen America is adapting Yunus's original microlending archetype to serve the poor and unbanked in New York City.

Though microenterprise in developing countries has been an important testing ground for empirical research, the broader lessons about evaluation and experimentation are applicable across fields and are vital for American policy makers. In recent years, we have witnessed greater adoption of this approach in the U.S. in both the non-profit and public sectors. New York City's Center for Economic Opportunity (CEO), for example, aims to function as a kind of anti-poverty laboratory. Seeded primarily with philanthropic funds, the CEO pilots and evaluates innovative and untested social programs to assess which might be successfully scaled. The CEO has been cited as one of the models for the recent federal efforts in this area, including the new Office of Social Innovation in the White House, and its various funds and activities. In 2009, Peter Orszag, then the Director of the White House Office of Management and Budget, famously called for more rigorous and "evidenced based" evaluation of federally funded programs, advocating a kind of clinical trial methodology. Others have pointed to Duflo and Banerjee's J-PAL at MIT as an action lab template for other areas of public policy, from global climate change to domestic social programs.

Not surprisingly, a strict RCT approach raises a host of implementation concerns related to cost, ethics, and scope, and is not without detractors. However, the spirit of this kind of inquiry, and the success of its numerous and modified applications, has helped to shift policy makers towards more risk-taking experimentation and exacting evaluation, both essential in the fight against entrenched and persistent poverty in the U.S. and around the world. This, too, will be a focus of my research in the coming months, and the subject of future posts. I welcome your comments.